Every year, thousands of investor relations professionals gather for the National Investor Relations Institute (NIRI) Annual Conference to discuss how to navigate the rapidly evolving capital markets, share industry insights, gain new perspectives and learn strategies to better communicate with the investment community and other key stakeholders.
More than 1,100 IR professionals and service providers attended this year’s event, making it NIRI’s most successful conference since 2006. Here are our top six takeaways from NIRI 2018:
NIRI has long advocated that investors “are better served when companies focus their guidance on the business’ long-term strategy and value drivers.” Not only does this shift from providing short-term quarterly guidance have the support of industry leaders including Warren Buffett and Jamie Dimon, but institutional investors in general are focused on the longer-term as well. The 2017 Edelman Trust Barometer Special Report: Institutional Investors found that 86 percent of investors agree that companies that focus on short-term results do not benefit their investment strategy.
When companies think about preparing to meet the challenges of an activist investor, they often take a “let’s make sure this doesn’t happen to us” mindset. However, NIRI panelist Mason Morfit of ValueAct, one of the most prominent activist investment firms in the U.S., believes this is the most counterproductive mentality a company can adopt. Morfit says the true key to activism preparedness is to challenge the board to be its own activist and identify its company’s weaknesses. Boards should ask themselves, “How can we push ourselves to evolve and position the company for long-term growth?” And, “What are the elements of best-in-class corporate governance that we need to implement?”
Investor relations is the first line of communication with activists, Morfit asserts, and “the best thing an IRO can do is implement a two-way discussion with investors.” IROs that have strong relationships with investors can play a more strategic role at the board level and have a positive influence on the credibility of the company.
With the implementation of MiFID II across Europe, there are new, as-yet-unresolved questions about the future of the sell-side and the policy’s ultimate impact on the U.S. capital markets. With the shrinking of sell-side coverage, especially for smaller cap companies, IROs are increasingly taking investor targeting and non-deal roadshow planning in-house and/or using outside IR advisors.
As the role of the IRO has evolved to be more financially and strategically focused, ex-Wall Street professionals are gravitating toward corporate IR opportunities to work directly with CFOs. Having sat on the other side of the table at one-on-one meetings, this new wave of IROs are able to understand the investor’s point of view and tailor IR content to be relevant and valuable. Feedback from a set of ex-“Wall Streeters” turned IROs includes: leverage internal partners to get quick answers to investor questions, refine the IR presentation content to include relevant quantitative and qualitative material, and constantly evaluate the peer group materials to stay competitive.
While only 35 percent of investors surveyed in Edelman’s institutional investor study agreed that their firm has changed its voting and/or engagement policy to address ESG risks, ESG is certainly gaining increased attention from the investment community. “ESG is evolving into something that will not just be a ‘nice to have’ but ‘a have to have,’” said Wendy Webb, NIRI 2018 panelist and CEO of Kestrel Advisors. As an independent director of several Fortune 500 companies, Webb believes IROs should familiarize themselves with the Sustainability Accounting Standards Board’s industry-specific factors relevant for his or her company, work closely with management and the board to identify the ESG matters that are most important to their business and proactively weave relevant disclosures into earnings call scripts and conversations with investors.
The proxy statement is a routine, required document for companies, but it should be viewed as an effective opportunity to communicate to a broad set of stakeholders. According to Theresa Molloy, Vice President of Corporate Governance at Prudential, the best proxy statements have evolved to meet the challenges of increased investor engagement and should tell a cohesive corporate story with input from investor relations, human resources, CSR and compensation advisors, as well as audit.
Involving each of those teams can result in a wealth of content, but first and foremost, the proxy statement should concisely articulate the company’s strategy and the board’s role in assisting management to execute it. Christina Maguire, Managing Director of Governance Research at Bank of New York Mellon, recommends focusing on rationale behind recent corporate governance changes, board diversity, as well as compensation structure details. “Cookie-cutter pay structures are a red flag because it shows the company isn’t paying based on metrics and performance,” Maguire said.
Lauren Tarola is a vice president, Financial Communications & Capital Markets, New York.
Jeremy Cohen is a vice president, Financial Communications & Capital Markets, Chicago.
Jordan Fisher is a senior account supervisor, Financial Communications & Capital Markets, Chicago.
Nicole Briguet is a senior account executive, Financial Communications & Capital Markets, New York.